Bill Fleckenstein: Too-easy money makes market too risky; The liquidity-fueled rally of the past 9 months is easy to like. But recent history tells us higher prices based on easy money carry extreme dangers, so a violent drop could lie ahead.
The liquidity-fueled rally of the past 9 months is easy to like. But recent history tells us higher prices based on easy money carry extreme dangers, so a violent drop could lie ahead.
There is not much one can say to make sense out of the maniacal rise we have seen in the stock market since last fall, other than to note that the third and fourth rounds of bond buying by our Federal Reserve (aka QE3 and QE4) have boosted stock prices 20 to 25%.
Beneath the surface, however, stocks are a house of cards. Simply because prices are rising as a consequence of the massive liquidity injected by the Fed (and the Bank of Japan) – combined with “professionals” running other people’s money who are terrified of not keeping up with the averages – does not mean that participating in the stock market at the moment is something that anyone who is sane ought to do.
The wrong kind of royal flush
Even so, resisting the siren song of apparently easy money is difficult, and most people eventually get sucked in. This is shown by the latest mutual fund statistics, which show that people are taking money out of bond funds and pushing it into stock funds.